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The Great Housing Mismatch: Why Aussie Homes are No Longer Meeting Buyer and Rental Needs

The typical Aussie household has changed considerably over the past few decades and what we need from our homes has evolved along the way.

With many homes now decades old, there is a growing mismatch between what people are looking to buy or rent and the types of properties out there.

One of the biggest changes has been a shift in the average number of people living in any given home, with the average household size shrinking over time.

The impact of interest rate hikes is still being felt

Back in 1920, there were 4.6 people per household on average, according to the ABS. By 1961, this had fallen to 3.6 and, as of 2023, was estimated at just 2.5.

Australians are having fewer children and living longer, with single person households becoming increasingly common. Between the 1981 and 2021 censuses, the share of single person households increased from 18% to 26%.

Over the same period, the share of family households decreased from 78% to 70.5%. Within the category of families, the proportion of couple-only households increased from 29% to 39%.

Among property seekers looking to buy or rent houses, the shrinking household size has reweighted demand away from larger homes towards those with fewer bedrooms.

Australians are looking for smaller houses but bigger units

Among all the houses listed for sale on realestate.com.au in March 2024, those with four or more bedrooms were the most common, accounting for 55% of all listings.

However, among those looking to buy, houses with four or more bedrooms were less commonly searched for than three—or even two–bedroom houses.

The same trend was seen for rent searches, with three and two-bedroom houses the most in demand.

In contrast to houses which have seen a fall in the number of bedrooms buyers are looking for, the opposite has been seen in the unit market.

In recent years, particularly post-COVID, there has been rising demand for larger units. While two-bedroom units remain the most sought-after by both buyers and renters, demand for three-bedroom units has steadily risen.

Affordability is likely a key factor here. Fewer young couples can afford houses, so more are raising their families in units and townhouses. The increased prevalence of remote and hybrid working has also driven up demand for an extra bedroom turned office.

This has resulted in a significant disparity in the demand for three-bedroom units versus the supply, particularly in the market to buy.

Nowhere is the discrepancy between the supply and demand for three-bedroom units greater than in Sydney, Australia’s least affordable capital city.

In March, three-bedroom units accounted for 18% of all units listed for sale in Greater Sydney. Searches to buy three-bedroom units, in contrast, accounted for 40% of the total.

In other words, the demand for three-bedroom units in Sydney is significantly exceeding supply.

The implications for pricing and development

Understanding the mismatch between demand and the current supply of housing has implications for future development and pricing.

In the case of houses, the excess supply of properties with four or more bedrooms implies less of a price premium for those additional bedrooms.

Another implication could be the justification for developing more two-bedroom houses, which are currently relatively scarce.

Many people prefer the space and privacy offered by houses over units.

With over one in four households now made up of a single person and the percentage of childfree couples growing, it is reasonable to assume that there will be growing demand for smaller homes.

In the case of units, we are likely to see a growing premium for properties with a third bedroom, particularly in markets such as Perth, Sydney and Melbourne, where demand is exceeding supply.

Again, this demonstrates a need to increase the development of larger units to meet the changing needs of Australians.

If you are considering selling a property in Albany, Mount Barker, Denmark or Walpole areas, please contact or call me to discuss your needs. Consultation, advice and appraisals are free of charge, with no obligation or harassment – ever.

Main Source: Anne Flaherty, Economist at REA Group 10 April 2024